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taxadvisor.uk
taxadvisor.uk, Chartered Certified Accountant
Category: Tax
Satisfied Customers: 4977
Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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I am the sole shareholder in my Limited Company (A) (registered

Customer Question

I am the sole shareholder in my Limited Company (A) (registered in England and VAT registered). I wish to start a new company(B) (registered in Scotland, not VAT registered) with my daughter. We will be joint shareholders.
Are there any tax implications/liabilities if company (A) lends money to company (B)?
Will this be viewed by HMRC as a legitimate business loan or will it be viewed as a Directors' loan.
Should company (B) pay interest to company (A) for this loan?

Thanks

Chris
Submitted: 4 years ago.
Category: Tax
Expert:  taxadvisor.uk replied 4 years ago.
Hello, if you have any questions or need further clarification after reading my answer please let me know.

Thank you for your question..

If it is a genuine loan from one company to another and is properly documented, I see no tax implications. The lender company will show the loan as a debtor in its books and the receiving company will show it as loan within its liabilities.

I presume the loan is to fund the working capital of company 'B' and there are liquid funds in Company 'A' to make it possible.

My advice would be to draw a proper loan agreement between the two companies and clearly set out the terms of the loan, repayment and interest terms. This way you would be able to satisfy that it is a company loan at arm's length and a commercial transaction.

Also document the existence of it in the minutes of both companies respective board meeting.

If you need more information please let me know before you rate my service.

I hope this is helpful and answers your question. I am available for any follow up questions you may have, and you can use the reply button to post your follow up questions to the page.

Customer: replied 4 years ago.

Would the same apply if the Limited company were to lend money to a Sole Trader or partnership?.......obviously for working capital. I'm trying to use available funds(retained profits) from my company in preference to taking out cash, which would involve paying a further 25% and thus reduce the capital available. Thanks Chris

Expert:  taxadvisor.uk replied 4 years ago.

Chris, thank you for your reply...

 

Provided it is a loan at arm's length and there is a properly documented loan agreement with clear terms of repayment terms and interest rates, then it should be okay. Any commercial arrangement should work.

 

If you need more information please let me know before you rate my service.

I hope this is helpful and answers your question. I am available for any follow up questions you may have, and you can use the reply button to post your follow up questions to the page.

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